Overview of the Weaknesses in the Statutory and Institutional Framework for Corporate Financial Reporting and Consequences Mr. Frédéric Gielen, Senior.

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Presentation on theme: "Overview of the Weaknesses in the Statutory and Institutional Framework for Corporate Financial Reporting and Consequences Mr. Frédéric Gielen, Senior."— Presentation transcript:

1 Overview of the Weaknesses in the Statutory and Institutional Framework for Corporate Financial Reporting and ConsequencesMr. Frédéric Gielen,Senior Financial Management Specialist, World BankREPARIS Conference, Brussels, June 30, 2004

2 South Central and South East EuropeAlbaniaBosnia and HerzegovinaBulgariaCroatiaKosovo (UNSCR 1244)Former Yugoslav Republic of MacedoniaRomaniaSerbia and MontenegroTurkey

4 Path of financial developmentPrivate Sector GrowthEffective functioning of the market economy requires a supporting infrastructure for information disclosure.Path of financial developmentProductivityy/l4y/l3y/l2Output Levelsy/l1Capital IntensitySource: Based on the econometric findings of Levine, Loayza, and Beck (2000)

5 International Financial ArchitectureCodes and StandardsFinancial System StabilityPrivate Sector Growth

6 Reports on the Observance of Standards and CodesIMFData DisseminationFiscal Transparency…IMF and World BankBanking SupervisionSecurities Market RegulationWorld BankCorporate GovernanceAccounting and AuditingInsolvency Regimes and Creditor Rights

7 Accounting ScandalsEnron's Planned End (Washington Post)Symbol of Greed Has Shed Assets,Hopes to Drop Name and Emerge(…) If the plan goes forward as expected, only Prisma Energy International Inc., a holding company for nearly two dozen gas and electricity businesses with 4,900 employees located around the globe, would remain. Creditors, who lost about $63 billion, would get back from 17 to 22 cents on the dollar in cash and in Prisma stock.(…) At one point, Enron employed 32,000 workers in outposts around the globe, rapidly expanding from its home base in Houston to Brazil and India. (…)WorldCom goes bankrupt (The Guardian)Telecommunications giant WorldCom has filed for bankruptcy in America's biggest corporate failure.(…) The bankruptcy would be twice as large as that of energy trader Enron in December, which set a record at the time, and four times as large as that of telecommunications firm Global Crossing in January. In its bankruptcy filing, WorldCom reported more than $107bn (£67.9bn) in assets and debts of $32bn. (…)How Parmalat Went Sour (Business Week)Here's the skinny on Europe's enormous financial scandalIn the wake of the financial scandals at Enron, WorldCom (MCWEQ ), and Tyco International (TYC ), European chief executives smugly insisted no such fraud could ever occur in Europe. They spoke too soon. The accounting calamity at Italian dairy-foods giant Parmalat has prosecutors scrambling to find out what happened to $8.5 billion to $12 billion in vanished assets. (…)Dutch authorities probe Ahold (BBC)Ahold's AH flagship store is in talks with suppliers about its payments(…) the probe focused on secret letters relating to Ahold's Swedish joint-venture ICA. The paper reported that Ahold had counted the results in full in its results, but was not entitled to do so because it had only built up a large minority stake in the joint-venture.(…) In February, Ahold shocked investors after it admitted it had overstated profits at its US Foodservice in 2001 and 2002 by more than $500m (£318m). (…)“If the confidence of the public in the integrity of accountants’ reports is shaken, their value is gone.”Mr Arthur Andersen, 1932

8 Four Pillars of Good Corporate Financial ReportingAccountingStandardsAccountingandAuditingPracticesCorporateFinancialReportingLegislativeAndRegulatoryFrameworkInstitutionalizedEnforcementMechanisms

9 The ROSC Program in South Central and South East EuropeAssessment CompletedBulgariaCroatiaFormer Yugoslav Republic of MacedoniaRomaniaAssessment in ProgressBosnia and HerzegovinaRemaining Assessments (to be Completed in 2005 and 2006)AlbaniaKosovo (UNSCR 1244)Serbia and MontenegroTurkey

10 A Very Positive NoteMajor Steps Forward in the Process of Enhancing the Quality of Corporate Financial ReportingChallenge that Lies Ahead: Implementation and Enforcement.

11 Weaknesses in the Statutory and Institutional FrameworkShortfalls in the Statutory FrameworkWeak Accounting and Auditing ProfessionWeak Academic and Professional EducationLax Accounting and Auditing StandardsWeak Institutionalized Enforcement Capacity (Regulators, Supervisors, Judiciary)